<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 1997 COMMISSION FILE NUMBER 0-20574
------------------------
THE CHEESECAKE FACTORY INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 51-0340466
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
26950 AGOURA ROAD
CALABASAS HILLS, CALIFORNIA 91301
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (818) 871-3000
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
As of July 28, 1997, 10,960,408 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
---------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets--June 29, 1997 and December 29, 1996................ 1
Consolidated Statements of Operations--
Thirteen weeks and twenty-six weeks ended June 29, 1997 and June 30, 1996..... 2
Consolidated Statements of Cash Flows--
Twenty-six weeks ended June 29, 1997 and June 30, 1996........................ 3
Notes to Consolidated Financial Statements--June 29, 1997....................... 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.............................. 5-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................... 12
Item 6. Exhibits and Reports on Form 8-K................................................ 12
Signatures...................................................................... 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 11,101,986 $ 8,535,960
Investments and marketable securities.......................................... 1,917,500 1,770,000
Accounts receivable............................................................ 2,140,333 2,383,138
Other receivables.............................................................. 1,494,626 2,310,096
Advances to officers and employees............................................. 110,620 188,361
Inventories.................................................................... 4,319,493 4,206,251
Preopening expenses............................................................ 6,350,308 6,228,938
Prepaid expenses............................................................... 1,762,838 1,777,696
-------------- --------------
Total current assets......................................................... 29,197,704 27,400,440
-------------- --------------
Property and equipment, net...................................................... 77,714,189 73,036,678
-------------- --------------
Other assets:
Marketable securities.......................................................... -- 295,700
Other receivables.............................................................. 6,140,235 4,805,437
Deferred income taxes.......................................................... 722,445 788,220
Other.......................................................................... 2,362,478 1,828,773
-------------- --------------
Total other assets........................................................... 9,225,158 7,718,130
-------------- --------------
Total assets............................................................... $ 116,137,051 $ 108,155,248
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 8,968,526 $ 8,909,100
Income taxes payable........................................................... 2,601,557 835,043
Other accrued expenses......................................................... 8,165,042 6,561,761
Deferred income taxes.......................................................... 2,337,131 2,337,131
-------------- --------------
Total current liabilities.................................................... 22,072,256 18,643,035
-------------- --------------
Long-term debt................................................................... 6,000,000 6,000,000
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized, none issued and
outstanding.................................................................. -- --
Common Stock, $.01 par value, 30,000,000 shares authorized; 10,960,408 and
10,939,608 issued and outstanding for 1997 and 1996, respectively............ 109,604 109,396
Additional paid-in capital..................................................... 55,563,255 55,264,447
Retained earnings.............................................................. 32,451,136 28,323,050
Marketable securities valuation account........................................ (59,200) (184,680)
-------------- --------------
Total stockholders' equity................................................... 88,064,795 83,512,213
-------------- --------------
Total liabilities and stockholders' equity................................. $ 116,137,051 $ 108,155,248
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an intergral part of these consolidated financial
statements.
1
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 29, 1997 JUNE 30, 1996 JUNE 29, 1997 JUNE 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales.................................. $ 46,294,676 $ 33,745,418 $ 87,186,101 $ 64,856,387
Bakery sales...................................... 4,700,651 5,464,878 9,037,688 9,733,907
------------- ------------- ------------- -------------
Total revenues.................................. 50,995,327 39,210,296 96,223,789 74,590,294
------------- ------------- ------------- -------------
Costs and expenses:
Cost of food, beverages and supplies.............. 13,120,188 9,937,608 24,949,329 19,152,410
Bakery costs...................................... 1,827,533 2,293,841 3,588,600 4,080,597
Operating expenses:
Labor........................................... 16,572,215 12,599,066 31,192,981 23,449,766
Occupancy and other............................. 7,943,674 5,520,062 15,416,617 10,735,313
General and administrative expenses............... 4,678,341 3,435,051 8,969,654 6,914,075
Depreciation and amortization expenses............ 3,210,405 2,586,479 5,975,711 5,093,989
------------- ------------- ------------- -------------
Total costs and expenses........................ 47,352,356 36,372,107 90,092,892 69,426,150
------------- ------------- ------------- -------------
Income from operations.............................. 3,642,971 2,838,189 6,130,897 5,164,144
Interest income..................................... 55,750 135,156 143,399 255,623
Interest expense.................................... (115,616) (18,271) (115,616) (18,271)
Other income........................................ 87,747 45,477 143,742 59,994
------------- ------------- ------------- -------------
Income before income taxes.......................... 3,670,852 3,000,551 6,302,422 5,461,490
Income tax provision................................ 1,266,444 938,350 2,174,336 1,775,069
------------- ------------- ------------- -------------
Net income.......................................... $ 2,404,408 $ 2,062,201 $ 4,128,086 $ 3,686,421
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share:
Primary........................................... $ .22 $ .19 $ .37 $ .34
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares outstanding............... 11,031,866 10,945,398 11,029,807 10,943,258
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted..................................... $ .22 $ .19 $ .37 $ .33
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares outstanding............... 11,046,150 11,124,854 11,044,260 11,136,321
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an intergral part of these consolidated financial
statements.
2
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 4,128,086 $ 3,686,421
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization.................................................. 5,975,711 5,093,989
Gain on asset sale............................................................. -- (4,500)
Loss on available-for-sale securities.......................................... 65,812 13,478
Deferred income taxes.......................................................... (4,808) --
Changes in assets and liabilities:
Accounts receivable.......................................................... 242,805 139,371
Other receivables............................................................ (519,328) (2,231,151)
Advances to officers and employees........................................... 77,741 481,898
Inventories.................................................................. (113,242) (847,586)
Preopening expenses.......................................................... (2,704,829) (2,983,164)
Prepaid expenses............................................................. (322,228) (265,755)
Other........................................................................ (649,591) (1,046,830)
Accounts payable............................................................. 59,426 (1,932,357)
Income taxes payable......................................................... 1,766,514 833,893
Other accrued expenses....................................................... 1,603,281 1,573,271
------------- -------------
Cash provided by operating activities........................................ 9,605,350 2,510,978
------------- -------------
Cash flows from investing activities:
Additions to property and equipment.............................................. (7,616,791) (8,081,403)
Sale of property and equipment................................................... -- 4,500
Sales of available-for-sale securities........................................... 278,451 87,172
------------- -------------
Cash used by investing activities............................................ (7,338,340) (7,989,731)
------------- -------------
Cash flows from financing activities:
Proceeds from short-term bank borrowings......................................... -- 3,000,000
Common stock issued.............................................................. 190 544
Proceeds from exercise of employee stock options................................. 298,826 727,947
------------- -------------
Cash provided by financing activities.......................................... 299,016 3,728,491
------------- -------------
Net change in cash and cash equivalents............................................ 2,566,026 (1,750,262)
Cash and cash equivalents at beginning of period................................... 8,535,960 10,077,713
------------- -------------
Cash and cash equivalents at end of period......................................... $ 11,101,986 $ 8,327,451
------------- -------------
------------- -------------
Supplemental disclosures:
Interest paid.................................................................... $ 209,790 $ 18,116
------------- -------------
------------- -------------
Income taxes paid................................................................ $ 439,829 $ 941,176
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an intergral part of these consolidated financial
statements.
3
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying consolidated financial statements of The Cheesecake Factory
Incorporated and Subsidiaries (the "Company") for the thirteen weeks and
twenty-six weeks ended June 29, 1997 and June 30, 1996 have been prepared in
accordance with generally accepted accounting principles, and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. The financial
statements presented herein have not been audited by independent public
accountants, but include all material adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial condition, results of operations and cash
flows for such periods. However, these results are not necessarily indicative of
results for any other interim period or for the full year. The consolidated
balance sheet data presented herein for December 29, 1996 was derived from the
Company's audited consolidated financial statements for the fiscal year then
ended. The preparation of financial statements in accordance with generally
accepted accounting principles requires the Company's management to make certain
estimates and assumptions for the reporting periods covered by the financial
statements. These estimates and assumptions affect the reported amounts of
assets, liabilities, revenues and expenses. Actual amounts could differ from
these estimates.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form 10-K for the fiscal
year ended December 29, 1996.
NOTE B--MARKETABLE SECURITIES
Marketable securities, all classified as available for sale, consisted of
the following as of June 29, 1997:
<TABLE>
<CAPTION>
UNREALIZED BALANCE
CLASSIFICATION COST FAIR VALUE LOSS SHEET AMOUNT MATURITY
- ------------------------------------- ------------ ------------ ----------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
Current assets:
Preferred stocks................... $ 2,010,000 $ 1,917,500 $ (92,500) $ 1,917,500 No maturity dates
</TABLE>
NOTE C--NET INCOME PER SHARE
Net income per share calculations are based on the weighted average number
of common shares and common share equivalents outstanding during the thirteen
weeks and twenty-six weeks ended June 29, 1997 and June 30, 1996. The primary
net income per share amount for each period is based on the weighted average
number of shares outstanding during each period, increased by the common
equivalent shares (vested and exercisable stock options) determined using the
treasury stock method. The fully diluted net income per share amount for each
period is based on the weighted average number of shares outstanding during each
period, increased by the common equivalent shares (vested and exercisable stock
options as well as nonvested and contingently exercisable stock options)
determined using the treasury stock method, utilizing the higher of the average
market price or ending market price for the Company's common stock for each
period. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which will not materially change the calculation of primary net income
per share for the Company. The Company intends to adopt the provisions of SFAS
No. 128 when reporting the results of operations for the full fiscal year ending
December 28, 1997.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS FORM 10-Q UNDER ITEM 2, "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", WHICH ARE NOT
HISTORICAL FACTS CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE INTENDED TO BE
COVERED BY THE SAFE HARBORS CREATED THEREBY. FORWARD-LOOKING STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THE
ACTUAL RESULTS, PERFORMANCE, OR ACHIEVEMENTS OF THE CHEESECAKE FACTORY
INCORPORATED AND ITS SUBSIDIARIES TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH RISKS, UNCERTAINTIES, AND OTHER FACTORS
INCLUDE, BUT ARE NOT NECESSARILY LIMITED TO, THE FOLLOWING: CHANGES IN GENERAL
ECONOMIC CONDITIONS WHICH AFFECT CONSUMER SPENDING PATTERNS FOR RESTAURANT
DINING OCCASIONS; INCREASING COMPETITION IN THE UPSCALE CASUAL DINING SEGMENT OF
THE RESTAURANT INDUSTRY; ADVERSE WEATHER CONDITIONS WHICH CAUSE THE TEMPORARY
UNDERUTILIZATION OF OUTDOOR PATIO SEATING AVAILABLE AT SEVERAL OF THE COMPANY'S
RESTAURANTS; EVENTS WHICH INCREASE THE COST TO DEVELOP AND/OR DELAY THE
DEVELOPMENT AND OPENING OF NEW RESTAURANTS; CHANGES IN THE AVAILABILITY AND/OR
COST OF RAW MATERIALS, LABOR, AND OTHER RESOURCES NECESSARY TO OPERATE THE
COMPANY'S RESTAURANTS AND BAKERY PRODUCTION FACILITY; THE SUCCESS OF OPERATING
INITIATIVES; DEPTH OF MANAGEMENT; ADVERSE PUBLICITY; TECHNOLOGICAL DIFFICULTIES
AND SUBOPTIMAL OPERATING LEVERAGE ASSOCIATED WITH THE COMPANY'S BAKERY
PRODUCTION FACILITY; THE COMPANY'S DEPENDENCE ON A SINGLE BAKERY PRODUCTION
FACILITY; THE COMPANY'S ABILITY TO OBTAIN AND RETAIN LARGE-ACCOUNT CUSTOMERS FOR
ITS BAKERY OPERATIONS; CHANGES IN TIMING AND/OR SCOPE OF THE DESSERT MARKETING
AND PROMOTIONAL PLANS OF LARGE-ACCOUNT BAKERY CUSTOMERS WHICH CAUSE FLUCTUATIONS
IN BAKERY SALES AND OPERATING RESULTS; THE RATE OF GROWTH OF GENERAL AND
ADMINISTRATIVE EXPENSES ASSOCIATED WITH BUILDING A STRENGTHENED CORPORATE
INFRASTRUCTURE TO SUPPORT THE COMPANY'S EXPANDED RESTAURANT AND BAKERY
OPERATIONS; THE AVAILABILITY, AMOUNT, TYPE, AND COST OF CAPITAL FOR THE COMPANY
AND THE DEPLOYMENT OF SUCH CAPITAL; CHANGES IN, OR ANY FAILURE TO COMPLY WITH,
GOVERNMENTAL REGULATIONS; THE REVALUATION OF ANY OF THE COMPANY'S ASSETS; THE
AMOUNT OF, AND ANY CHANGES TO, TAX RATES; ADVERSE RULINGS, JUDGMENTS OR
SETTLEMENTS INVOLVING LITIGATION OR OTHER LEGAL MATTERS; AND OTHER FACTORS
REFERENCED IN THIS FORM 10-Q AND THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 29, 1996. THE COMPANY DOES NOT EXPECT TO UPDATE FORWARD-LOOKING
STATEMENTS CONTINUALLY AS CONDITIONS CHANGE.
GENERAL
The Company's revenues consist of sales from its restaurant operations and
sales to other foodservice operators and distributors from its bakery
operations. Certain costs and expenses relate only to restaurant sales (cost of
food, beverages and supplies) or only to bakery sales (bakery costs), while
other costs and expenses relate to both restaurant and bakery sales (operating
expenses including labor and occupancy, general and administrative expenses, and
depreciation and amortization expenses). The Company analyzes its revenue, in
part, based on comparable restaurant sales which is defined to include the sales
of all restaurants open during the full period of all periods being compared.
Bakery sales can fluctuate from quarter to quarter based on the timing and
amount of orders from large-account bakery customers.
RESULTS OF OPERATIONS
The following table presents for the thirteen-weeks and the twenty-six weeks
ended June 29, 1997 and June 30, 1996 the Consolidated Statements of Operations
of the Company expressed as percentages of
5
<PAGE>
total revenues. The results of operations for the twenty-six weeks ended June
29, 1997 are not necessarily indicative of the results to be expected for the
full fiscal year.
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
% % % %
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales................................ 90.8 86.1 90.6 87.0
Bakery sales.................................... 9.2 13.9 9.4 13.0
----- ----- ----- -----
Total revenues................................ 100.0 100.0 100.0 100.0
----- ----- ----- -----
----- ----- ----- -----
Costs and expenses:
Cost of food, beverages, and supplies........... 25.7 25.3 25.9 25.6
Bakery costs.................................... 3.6 5.9 3.8 5.5
Operating expenses:
Labor......................................... 32.5 32.1 32.4 31.4
Occupancy and other........................... 15.6 14.1 16.0 14.5
General and administrative expenses............. 9.2 8.8 9.3 9.3
Depreciation and amortization expenses.......... 6.3 6.6 6.2 6.8
----- ----- ----- -----
Total costs and expenses...................... 92.9 92.8 93.6 93.1
----- ----- ----- -----
Income from operations............................ 7.1 7.2 6.4 6.9
Interest income (expense), net.................... (0.1) 0.2 -- 0.3
Other income (expense), net....................... 0.2 0.1 0.1 0.1
----- ----- ----- -----
Income before income taxes........................ 7.2 7.5 6.5 7.3
Income tax provision.............................. 2.5 2.3 2.2 2.4
----- ----- ----- -----
Net income........................................ 4.7 5.2 4.3 4.9
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
THIRTEEN WEEKS ENDED JUNE 29, 1997 VERSUS JUNE 30, 1996
REVENUES
For the thirteen weeks ended June 29, 1997, the Company's total revenues
increased 30% to $51.0 million versus $39.2 million for the thirteen weeks ended
June 30, 1996. Restaurant sales increased 37% to $46.3 million versus $33.7
million for the same period of the prior year. This $12.6 million increase
consisted of a $1.4 million (4.6%) increase in comparable restaurant sales for
the period, a $0.6 million increase in the sales of the Boca Raton restaurant
which was excluded from the base of comparable restaurants as a result of a
125-seat addition which was completed in December 1996, and $10.6 million from
the opening of new restaurants. Sales in comparable restaurants benefited, in
part, from the impact of an approximate 1.5% effective menu price increase that
was taken in all restaurants during the December 1996-January 1997 period. An
additional effective menu price increase of approximately 1.5% was completed
during June/July 1997.
Bakery sales decreased 14% to $4.7 million for the thirteen weeks ended June
29, 1997. This decrease was principally attributable to lower sales of special
promotional products to certain large-account bakery customers compared to sales
of such products in the same quarter of the prior year. In July 1997, the
Company commenced an expanded test of selected bakery products with an
international company that operates over 5,000 foodservice and retail outlets.
If the expanded test is successful, a further expansion of products into
additional outlets for this customer would have the potential to improve bakery
sales volumes during the fourth quarter of 1997. The Company continues to
develop and test products for other potential large-account bakery customers.
6
<PAGE>
COST OF FOOD, BEVERAGES AND SUPPLIES
During the thirteen weeks ended June 29, 1997, cost of food, beverages and
supplies for the restaurants was $13.1 million versus $9.9 million for the
comparable period last year. The related increase of $3.2 million was primarily
attributable to new restaurant openings. As a percentage of restaurant sales,
these costs decreased slightly to 28.3% versus 29.5% for the same period of the
prior year principally as a result of the impact of menu price increases and
certain cost reduction programs implemented by the Company.
BAKERY COSTS
Bakery costs, which include ingredient, packaging and production supply
costs, were $1.8 million for the thirteen weeks ended June 29, 1997 versus $2.3
million for the same period of the prior year. The related decrease of $0.5
million was primarily due to the 14% decrease in bakery sales for the thirteen
weeks ended June 29, 1997. As a percentage of bakery sales, bakery costs for the
quarter just ended decreased to 38.9% versus 42.0% for the comparable quarter
last year. This decrease was primarily due to lower costs for dairy-related
commodities and packaging materials, coupled with improved production yields in
the Company's bakery production facility.
OPERATING EXPENSES--LABOR
Labor expenses, which includes restaurant-level salaries and wages as well
as bakery direct labor costs (including associated fringe benefits), were $16.6
million for the thirteen weeks ended June 29, 1997 versus $12.6 million for the
same period of the prior year. This increase was principally due to the impact
of new restaurant openings. As a percentage of total revenues, labor expenses
were 32.5% versus 32.1% for the comparable period last year.
OPERATING EXPENSES--OCCUPANCY AND OTHER
Occupancy and other expenses include restaurant-level rent (minimum and
percentage), common area maintenance, repairs, utilities, outside services,
laundry and other operating expenses as well as certain of the bakery's indirect
production costs. Occupancy and other expenses increased 44% to $7.9 million for
the thirteen weeks ended June 29, 1997 versus $5.5 million for the same period
of the prior year. This increase was principally attributable to the 37%
increase in total restaurant sales for the thirteen weeks ended June 29, 1997.
As a percentage of total revenues, occupancy and other expenses were 15.6% for
the thirteen weeks ended June 29, 1997 versus 14.1% for the same period of
fiscal 1996. This increase was primarily due to the 14% decrease in bakery sales
for the thirteen weeks ended June 29, 1997 (which resulted in less leveraging of
the bakery's fixed and semi-fixed occupancy costs during the period), coupled
with higher operating costs on an absolute basis associated with the Company's
bakery production facility. One of the Company's principal goals for fiscal 1997
is to more effectively leverage the investment and fixed occupancy costs in the
new bakery production facility with higher sales levels. The Company added two
national salespeople and two product development professionals to its bakery
operations staff during the first quarter of fiscal 1997 in order to strengthen
the Company's marketing efforts for its bakery products.
The Company opened its first bakery cafe under The Cheesecake Factory brand
name on July 14, 1997 in the Ontario Mills shopping complex in the Los Angeles
market. This cafe, which features a limited selection of the Company's unique
desserts, beverages, sandwiches, and salads in a self-service format, is
operated by Host Marriott under a licensing agreement with the Company. Three
additional bakery cafe outlets are planned to open in the new terminal of the
Washington National Airport before the end of August 1997. These three outlets
will be operated by the Company under a subcontract with Host Marriott, which
manages the foodservice and retail concessions for that airport. The Company is
evaluating additional sites for at least one additional bakery cafe for a
planned opening in the Los Angeles market
7
<PAGE>
before the end of 1997. If successful, the bakery cafe concept could be more
rapidly expanded than the Company's full-service restaurants and could provide
an additional source of sales and operating leverage for the Company's bakery
production facility.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist of bakery selling and
administrative expenses (including product development and marketing expenses),
certain restaurant administrative expenses (principally credit card discounts
and certain insurance-related expenses), restaurant field supervision expenses
(salaries and expenses of regional vice presidents and area directors of
operations), and corporate support expenses (salaries and related fringe
benefits, travel, and other administrative expenses). General and administrative
expenses increased to $4.7 million for the thirteen weeks ended June 29, 1997
from $3.4 million for the same period of fiscal 1996, an increase of $1.3
million or 36%. As a percentage of total revenues, general and administrative
expenses increased slightly to 9.2% for the thirteen weeks ended June 29, 1997
versus 8.8% for the same period of fiscal 1996. The Company plans to continue to
strengthen its operational and corporate infrastructure during fiscal 1997 to
support its planned future growth. This strengthened infrastructure will likely
result in a higher level of general and administrative expenses during fiscal
1997. Additionally, the Company plans to aggressively pursue new large-account
customers for its bakery operations which will require continuing investments in
advertising and promotional programs. One of the Company's principal objectives
for fiscal 1997 is to more effectively leverage its operational and corporate
support infrastructure with higher sales volumes.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses increased to $3.2 million for the
thirteen weeks ended June 29, 1997 from $2.6 million for the thirteen weeks
ended June 30, 1996, an increase of $0.6 million or 24%. As a percentage of
total revenues, depreciation and amortization expenses were 6.3% for the
thirteen weeks ended June 29, 1997 versus 6.6% for the same period of the prior
year. The increase of $0.6 million for the thirteen weeks ended June 29, 1997
consisted of the following components: a $0.2 million increase (to $1.4 million)
in restaurant preopening amortization; a slight increase (to $0.5 million) in
bakery depreciation and amortization; a $0.4 million increase (to $1.2 million)
in restaurant depreciation; and a slight increase (to $0.1 million) in corporate
support-related depreciation. The increase in restaurant depreciation was
principally attributable to the opening of new restaurants.
As a result of the highly customized and operationally complex nature of the
Company's restaurants, the restaurant preopening process is extensive and costly
relative to that of most chain restaurant operations. Preopening costs, which
often exceed $1 million per restaurant, include recruiting, training, relocation
and related costs for developing management and hourly staff for new
restaurants, as well as other costs directly related to the opening of new
restaurants. Preopening costs will vary from location to location depending on a
number of factors including, among others, the proximity of other established
Company restaurants, the size and layout of each location, and the relative
difficulty of the restaurant staffing and training process. The Company
currently defers preopening costs until the opening of new restaurants and then
amortizes the deferred costs over the 12-month period immediately following the
respective openings. Total restaurant preopening amortization will vary from
quarter to quarter depending on the timing of restaurant openings and the number
of newer restaurants amortizing their preopening costs in a given quarter. Based
on the Company's planned fiscal 1997 openings of new restaurants (as of July 31,
1997), management believes that total preopening amortization for fiscal 1997
will likely be higher than the amount reported for fiscal 1996. During fiscal
1996, the Company reevaluated its restaurant preopening process with the
objective of reducing its timeframe, intensiveness, and overall cost. The
Company continues to review this process during fiscal 1997. However, there can
be no assurance that preopening costs will be reduced for future restaurants.
8
<PAGE>
TWENTY-SIX WEEKS ENDED JUNE 29, 1997 VERSUS JUNE 30, 1996
REVENUES
For the twenty-six weeks ended June 29, 1997, the Company's total revenues
increased 29% to $96.2 million versus $74.6 million for the twenty-six weeks
ended June 30, 1996. Restaurant sales increased 34% to $87.2 million versus
$64.9 million for the same period of the prior year. This $22.3 million increase
consisted of a $3.3 million (5.6%) increase in comparable restaurant sales for
the period, a $1.2 million increase in the sales of the Boca Raton restaurant
which was excluded from the base of comparable restaurants as a result of a
125-seat addition which was completed in December 1996, and $17.8 million from
the openings of four new restaurants during the trailing 12 months ended June
29, 1997.
Bakery sales decreased 7% to $9.0 million for the twenty-six weeks ended
June 29, 1997. This decrease principally attributable to lower sales of special
promotional products to certain large-account bakery customers compared to sales
of such products in the same period of the prior year.
COST OF FOOD, BEVERAGES AND SUPPLIES
During the twenty-six weeks ended June 29, 1997, cost of food, beverages and
supplies for the restaurants was $24.9 million versus $19.2 million for the
comparable period last year. The related increase of $5.7 million was primarily
attributable to new restaurant openings. As a percentage of restaurant sales,
these costs decreased slightly to 28.6% versus 29.5% for the same period of the
prior year principally as a result of the impacts of menu price increases and
certain cost reduction programs implemented by the Company during the period.
BAKERY COSTS
.......................................................................
Bakery costs, which include ingredient, packaging and production supply
costs, were $3.6 million for the twenty-six weeks ended June 29, 1997 versus
$4.1 million for the same period of the prior year. The related decrease of $0.5
million was primarily due to the 7% decrease in bakery sales for the twenty-six
weeks ended June 29, 1997. As a percentage of bakery sales, bakery costs for the
period just ended decreased to 39.7% versus 41.9% for the comparable period last
year. This decrease was due to lower costs for dairy-related commodities and
packaging materials, coupled with improved production yields in the Company's
bakery production facility.
OPERATING EXPENSES--LABOR
Labor expenses, which includes restaurant-level salaries and wages as well
as bakery direct labor costs (including associated fringe benefits), were $31.2
million for the twenty-six weeks ended June 29, 1997 versus $23.5 million for
the same period of the prior year. This increase was principally due to the
impact of new restaurant openings. As a percentage of total revenues, labor
expenses were 32.4% versus 31.4% for the comparable period last year.
OPERATING EXPENSES--OCCUPANCY AND OTHER
Occupancy and other expenses increased 44% to $15.4 million for the
twenty-six weeks ended June 29, 1997 versus $10.7 million for the same period of
the prior year. This increase was principally attributable to the 34% increase
in total restaurant sales for the twenty-six weeks ended June 29, 1997. As a
percentage of total revenues, occupancy and other expenses were 16% for the
twenty-six weeks ended June 29, 1997 versus 14.5% for the same period of fiscal
1996. This increase was primarily due to the 7% decrease in bakery sales for the
twenty-six weeks ended June 29, 1997 (which resulted in less leveraging of the
bakery's fixed and semi-fixed occupancy costs during the period), coupled with
higher operating costs on an absolute basis associated with the Company's bakery
production facility.
9
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $9.0 million for the
twenty-six weeks ended June 29, 1997 from $6.9 million for the same period of
fiscal 1996, an increase of $2.1 million or 30%. As a percentage of total
revenues, general and administrative expenses were unchanged at 9.3% for the
twenty-six weeks ended June 29, 1997 versus the same period of fiscal 1996.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses increased to $6.0 million for the
twenty-six weeks ended June 29, 1997 from $5.1 million for the twenty-six weeks
ended June 30, 1996, an increase of $0.9 million or 17%. As a percentage of
total revenues, depreciation and amortization expenses were 6.2% for the twenty-
six weeks ended June 29, 1997 versus 6.8% for the same period of the prior year.
The increase of $0.9 million for the twenty-six weeks ended June 29, 1997
consisted of the following components: a $0.1 million decrease (to $2.6 million)
in restaurant preopening amortization; a $0.1 million increase (to $0.9 million)
in bakery depreciation and amortization; a $0.8 million increase (to $2.3
million) in restaurant depreciation; and a $0.1 million increase (to $0.2
million) in corporate support-related depreciation. The increase in restaurant
depreciation was principally attributable to the opening of new restaurants.
LIQUIDITY AND CAPITAL RESOURCES
Following is a summary of the Company's key liquidity measurements for the
twenty-six weeks ended June 29, 1997 and June 30, 1996:
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------------
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C>
Cash and marketable securities on hand, end of
period.......................................... $13.0 $15.3
Net working capital, end of period................ $ 7.1 $ 9.7
Current ratio, end of period...................... 1.3:1 1.5:1
Long-term debt, end of period..................... $ 6.0 $ --
Cash provided by operations....................... $ 9.6 $ 2.5
Capital expenditures.............................. $ 7.6 $ 8.1
</TABLE>
During the twenty-six weeks ended June 29, 1997, the Company's total amount
of cash and marketable securities on hand decreased by $2.3 million to $13.0
million versus $15.3 million as of June 30, 1996. Similarly, the Company's net
working capital position decreased by $2.6 million during the period to $7.1
million as of June 29, 1997. It is not uncommon for operators in the restaurant
industry to maintain a minimal or slightly negative net working capital position
as the restaurant business receives substantially immediate payment for sales
while payment terms to suppliers for inventories and related items are typically
15 to 30 days. The Company borrowed an additional $1 million under its revolving
credit and term loan facility during July 1997 and expects to increase its
borrowings under that facility as necessary during the remainder of fiscal 1997
to supplement funds generated from operations to support planned capital
expenditure levels.
During the twenty-six weeks ended June 29, 1997, the Company's total capital
expenditures were $7.6 million, most of which were related to its restaurant
operations. For fiscal 1997, the Company estimates that its total capital
expenditure requirement will be approximately $28 million, excluding restaurant
preopening expenses. This estimate includes approximately $25 million (net of
expected landlord construction contributions) to open as many as six new
restaurants and to provide for an increase in construction-in-progress
disbursements for anticipated fiscal 1998 openings. The Company has historically
leased the land and building shells for its restaurant locations; however, the
Company has expended cash for leasehold improvements and furnishings, fixtures,
and equipment for the locations. The remaining
10
<PAGE>
estimated capital expenditures for fiscal 1997 consist of approximately $1
million for the bakery cafe concept and approximately $2 million for
maintenance-related expenditures for the Company's existing restaurants, bakery,
and corporate center.
The Company's planned capital expenditures for fiscal 1997 are expected to
be financed through a combination of cash provided by operations, cash and
marketable securities on hand, landlord construction contributions (when
available), and drawdowns on the Company's $25 million revolving credit and term
loan facility. During fiscal 1997, the Company may seek to obtain additional
debt and/or equity capital to finance its anticipated restaurant expansion in
1998 and thereafter. The Company may also seek other sources of financing
including equipment financing or the sale/leaseback of assets comprising its
headquarters and bakery production facility. There can be no assurance that any
additional financing will be available on suitable terms, if at all.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 13, 1997, a New Mexico corporation named Cheesecake Factory,
Inc. brought suit in the U.S. District Court of New Mexico against the Company,
its subsidiaries, and certain of its bakery customers alleging trademark,
service mark, and trade name infringement and wrongful registration with respect
to the Company's incontestable registration and use of "The Cheesecake Factory"
name. The plaintiff claims an exclusive right to the use of "The Cheesecake
Factory" mark in certain states and other geographical areas, and seeks to
enjoin the Company from any further sales of products under that mark within
such states and areas. On May 9, 1997, the Court determined that it would not
issue a preliminary injunction relating to the Company's sale of bakery products
under "The Cheesecake Factory" name in the state of Texas, where the Company's
sale of bakery products is substantial and where it currently operates one
restaurant with the intent of operating others under that name. At the same
time, the Court found that the plaintiff had used "The Cheesecake Factory" name
in the state of New Mexico prior to the Company's registration of that name and
prior to the Company's sale of bakery products under that name in that state.
Accordingly, the Court issued a preliminary injunction preventing the Company
from selling bakery products under "The Cheesecake Factory" name in the state of
New Mexico. Historically, sales of the Company's bakery products under "The
Cheesecake Factory" name in the state of New Mexico have been de minimus (less
than 1% of its total bakery product sales on an annual basis). The preliminary
injunction is not a final order as to either Texas or New Mexico. The case has
been set for trial commencing September 8, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHEESECAKE FACTORY INCORPORATED
By: /s/ DAVID M. OVERTON
------------------------------------------
David M. Overton
CHAIRMAN OF THE BOARD, PRESIDENT,
CHIEF EXECUTIVE AND OPERATING OFFICER
Date: August 4, 1997
By: /s/ GERALD W. DEITCHLE
------------------------------------------
Gerald W. Deitchle
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 11,101,986
<SECURITIES> 1,917,500
<RECEIVABLES> 2,140,333
<ALLOWANCES> 0
<INVENTORY> 4,319,493
<CURRENT-ASSETS> 29,197,704
<PP&E> 97,587,610
<DEPRECIATION> 19,873,421
<TOTAL-ASSETS> 116,137,051
<CURRENT-LIABILITIES> 22,072,256
<BONDS> 0
0
0
<COMMON> 109,604
<OTHER-SE> 87,955,191
<TOTAL-LIABILITY-AND-EQUITY> 116,137,051
<SALES> 96,223,789
<TOTAL-REVENUES> 96,223,789
<CGS> 28,537,929
<TOTAL-COSTS> 28,537,929
<OTHER-EXPENSES> 61,554,963
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,616
<INCOME-PRETAX> 6,302,422
<INCOME-TAX> 2,174,336
<INCOME-CONTINUING> 4,128,086
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,128,086
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
